Trump Can’t Fix Iran War Energy Situation Even With Deal

Regardless of how close the US and Iran are it really is for lasting peace agreementor whatever the actual circumstances may be, the disruption of the war on the global energy market is guaranteed to continue for months, possibly next year.

Ongoing challenges for oil and natural gas markets (and many other commodities, from helium to fertilizer) boil down to three main issues: flow, stock, and production. The area will not produce as much energy as it did before the war. It will take a long time to get existing oil and gas to start flowing into international markets again. And the full extent of the overall disruption to energy markets has been in months of ongoing pain, regardless of what kind of near-term agreement is reached.

Regardless of how close the US and Iran are it really is for lasting peace agreementor whatever the actual circumstances may be, the disruption of the war on the global energy market is guaranteed to continue for months, possibly next year.

Ongoing challenges for oil and natural gas markets (and many other commodities, from helium to fertilizer) boil down to three main issues: flow, stock, and production. The area will not produce as much energy as it did before the war. It will take a long time to get existing oil and gas to start flowing into international markets again. And the full extent of the overall disruption to energy markets has been in months of ongoing pain, regardless of what kind of near-term agreement is reached.

In practical terms, that means oil and gas prices will continue to rise over the summer — not suddenly drop as the Trump administration has predicted. As the head of Chevron he said This week, the absence of shock absorbers remaining in the global energy system will cause prices to rise through the peak driving season. That industry attitude contrasts with the sanguine approach still taken by oil traders, who have pushed up the base price of crude oil. slowly down in the hope of an agreement between the United States and Iran.

“Through this process (of opening the Strait of Hormuz) it will take several months if everything goes well. A temporary agreement can turn the channel (of exports) into a channel. At the same time, the flow of energy through the channel will continue to have a big obstacle. The world will have no choice but to use the rapidly decreasing inventories – and end the price of foreign energy, “said the vice president of foreign countries said high prices,” said Matthew. specialized in the Middle East.

Reopening the Straits of Hormuz, which was clear before US President Donald Trump launched a war on Iran in late February, is the main US push for an interim deal, even as the two sides continue to clash over major issues such as Iran’s enriched uranium and aid to regional allies. But even reaching an agreement on that course is very difficult.

The first and perhaps the biggest question is whether Iran will try to maintain some level of control over the passage of ships through the strait, as it has done since early in the conflict, including a system of “tolls” and the common passage of certain ships. Iran has insisted that the class rule of the future will be different from before; United States, and reported on the draft agreement this week, he said that the tribulation will return in a completely unrestrained state.

But it seems clear to many experts, including the former US government officials, that there is little chance of a return to a completely free Strait of Hormuz, now that Iran has realized its greatest leverage. If a post-war land government were to include some form of discrimination, either in the form of taxation, fees, or differential treatment for ships passing through, many of the region’s largest exporters could reduce the amount of oil and gas they ship through the narrow waterway.

“In such a multi-level system, trade flows can be more volatile, leading to higher oil market volatility,” the Oxford Institute for Energy Studies said in a recent report.

The head of the state oil company of the United Arab Emirates he said earlier this month that flows into the ocean – which previously was over 100 ships per day – will not return until the first part of 2027.

In any case, there remains a significant element of physical danger. It is not clear how many mines Iran may have placed in that area of ​​the sea or the timetable for removing them. The latest draft of the agreement would be is reported They require Iran to remove all mines within 30 days, but neither Trump nor the Iranian leadership have signed the deal, and its terms could change before they do. Iran’s administration has also shown interest in doing so keep aiming ships that have tried to pass the strait outside their control system. That adds to the ever-rising costs of marine insurance, higher freight rates, and the reluctance of shipping companies to run any vehicles.

“To come back, they need to trust that the strait will remain open. Is a temporary plan good enough when it could be a week-long trip? Each shipper will have to decide for themselves. They all have different risk tolerance levels,” Reed said.

Another big question Affecting the duration of the disruption is how much oil and gas will be produced to fill those vessels, if and when they return.

During the war, about 13 million barrels per day of oil production came offline, as the export outlets were closed. Even in the best case scenario, restoring those oil fields to pre-war production levels will take time, but the scale and duration of the outage has raised questions about the potential for long-term damage to reserves, a particular issue for Iraq and Kuwait. Along with direct war-related damage to oil and gas facilities, some of which estimates set as high as $50 billion, the road to full recovery of production will take months at least.

But there is another potential obstacle to future production in the area that has less to do with actual damage and more with measures to mitigate future threats. Many countries in the region, seeing the success that Saudi Arabia achieved to point the other way oil away from the Persian Gulf through onshore pipelines, they are considering long-term investments in alternative export infrastructure to avoid putting all their export eggs in the basket under Iranian control. Such measures could add stability to a region that has learned how vulnerable it is to coercion, but it will take significant long-term investment. At the same time, some regional producers may be tempted to reduce their pre-war production levels and reduce the amount of oil they export through Iran’s custodians.

Like the Oxford Institute to put it“Given the long time needed to develop additional infrastructure, other major producers (the Gulf Cooperation Council) may reduce exports through the (Strait of Hormuz) for a while.”

The possible extended time to return to the previous levels of production and transportation becomes a problem when looking at the scope of the total loss of energy supply in the three months of the war: Many experts. estimates that at least 1 billion barrels of production are off the market.

In normal times, spare capacity from the major oil producers might allay fears of a small market, but almost all readily available spare capacity is in the war-torn region. And the lists of businesses and governments (not counting China’s) have been greatly reduced by the total size of the losses and have already been recovered many times. That means the two main shock triggers for global energy markets have already worn off. In turn, declining stocks will continue to fall in the later part of the year, indicating continued high prices even after the end of hostilities.

The result is what many oil market observers (mainly investment banks and oil traders) expected would be a short-term headache that would only last as long as the war left lasting scars until next year. (That’s true for natural gas as well as oil and refined products, such as diesel and jet fuel.)

As ClearView Energy Partners, an energy consultant, concluded in a recent research note: “De-mining the Straits, moving trapped ships, and restarting production could take weeks to months, and repairing damaged equipment, restoring pre-war output levels, and restocking the depleted inventory could take a quarter of a calendar year to years.”

There likely won’t be any immediate dividends for consumers, regardless of what kind of deal Washington and Tehran ultimately agree to.